Barney Frank's Grand Bargain

Barney Frank has always been an outsider. Growing up in Bayonne, N.J., in the 1940s and ’50s, he was a Jewish kid in a Catholic neighborhood who also happened to be left-handed. He later discovered that he was homosexual in what was then a very straight and hostile world. “I’m used to being in the minority,” he once told an interviewer. “I’m a left-handed gay Jew. I’ve never felt, automatically, a member of any majority.”

As a young man, Frank, now 67 and chairman of the powerful Financial Services Committee of the U.S. House of Representatives, helped out at the truck stop his father owned off the New Jersey Turnpike. He spent hours listening to the truckers’ tales of blue-collar life, on and off the road. Those conversations helped him form a special skill: communicating complex political and economic concepts to people who don’t have the benefit of a higher education. Empathizing with the truckers, Frank developed a world view that embraces the working class.

That world view is ironclad and has prevailed throughout Frank’s variegated career. He has been an academic at Harvard, a Young Turk in the administration of Boston Mayor Kevin White, and a protégé of the deal-making House Speaker Thomas P. “Tip” O’Neill Jr. Since 1981, he has been a highly regarded, if controversial, congressman who refuses to apologize for his views. Democratic victories in the House of Representatives last fall landed him in the chairman’s seat on Financial Services.

From this position, Frank will play a major role in drawing up legislation and setting the political agenda on corporate governance issues of all types. Outraged at what he considers hubristic excess in executive pay, he promises a tougher line on remuneration. Populist-minded, he is committed to backing shareholders as they seek greater influence over board selection and a say in limiting C-suite perquisites. With Frank in charge, the little guy is likely to get a break.

Will Frank, who declined to be interviewed for this story, be a bull in the china shop when it comes to setting governance policy? That is the fear among some directors and corporate executives, who already feel horsewhipped by post-Enron laws such as Sarbanes-Oxley. An in-your-face liberal is the last person they want.

Verbally, Frank is already on a tear. When Christopher Cox, chairman of the U.S. Securities and Exchange Commission, gave the business lobby a surprise Christmas gift by softening rules on disclosing executive pay, Frank was quick with a stinging rebuke. He did likewise when the full sumptuousness of the exit package handed to Home Depot’s dismissed chief executive, Robert Nardelli, was disclosed. And when The Wall Street Journal reported in January that hedge fund managers routinely “rent” shares of companies to play out self-serving strategies, Frank was horrified. “We were meeting with him on the crowded floors of the Capitol that day, and he just couldn’t get over the story,” recalls Bob Lehner, director of public policy at the Business Roundtable, who also dealt with Frank when he was the Senate’s chief of staff.

Yet a closer look at Frank suggests that despite these professions of outrage, he will take a measured approach to leading Financial Services. Acquaintances say that, ultimately, his steel trap of a mind always reins in his emotions. His brain won’t let him allow dogma to send the U.S. economy south.

Forget the Labels

“Chairman Frank is a very thoughtful man and a sophisticated policy player. Labels like ‘liberal’ don’t have much consequence,” says Damon Silvers, associate general counsel for the AFL-CIO. “He’s aware of the linkage between good corporate governance and a good economy. How do we put our country in a good place globally? The country desperately needs leadership that thinks this way.”

Then there’s the fact that by far the biggest contributors to Frank’s political campaigns have been members of the financial services sector, which is strongly represented in Massachusetts. In the 2006 election, finance and insurance companies—including audit giants KPMG, Ernst & Young and PricewaterhouseCoopers—forked over $519,434, compared with the $90,498 that came in from organized labor.

Perhaps reflecting his dual loyalties, Frank has introduced a new twist into corporate governance discussions with his so-called “Grand Bargain,” which is designed to find common ground between the working man and management. Although it is somewhat vague, the compromise would involve business’ tolerating greater union organization, minimum wage hikes, housing aid and protections for American workers against free-trade job loss. In exchange, federal legislators would be sensitive to Corporate America when writing trade bills by taking into consideration business’ views on immigrant labor and other employment issues. They would also ease up on costly rules such as Sarbanes-Oxley compliance. Frank intends to hold hearings on the Grand Bargain this year to generate support for the conversation and to fine-tune its specifics. It has the full support of House Speaker Nancy Pelosi.